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I think this is missing something. Lets say I have 200 dollars of illegal money. How much value does that actually have? I would say 0 because it is illegal. Now lets say I buy a widget that is worth 100 dollars for 200 dollars. Then I sell it for 100 dollars. I now have converted 200 dollars of worthless illegal money into 100 dollars of legal money.

This happens all of the time for EBT and food stamps. Buy a case of pepsi for 30 dollars and sell it back for 15 (sometimes to the same seller). 30 electronic dollars that can only be spent on a limited set of goods is converted to 15 dollars cash that can be spent on anything.

My point is that the definition of "value" may actually align. It's ok if they new owner sells at a monetary loss because they are still making a gain.

No, that's the myth that keeps getting repeated.

The real situation is this: you have $200 of illegal money. Now you have the choice between using that $200 to buy a widget that's worth $100, or a widget that's worth $200.

Obviously you'll buy the widget that's worth $200.

EBT/food stamps are a bad analogy because the missing $15 in your example goes to transaction costs -- a middleman needs to buy, market, sell.

In real estate, that simply corresponds to the real estate broker's fee -- 5% or 6%. Not 50%.

The point remains: it doesn't matter if you're laundering or not, you never want to lose money you don't have to. Just because it was illegal in the first place doesn't make you magically charitable. Everyone always wants the best bang for their buck. Period.

okay, now what if the $100 widget is purposely set up to obfuscate the transaction/trail and the actors involve help you (like say a new developer that is wink wink) and the $200 increases your chances of getting caught?

i think nobody is arguing that you want the best bang for your buck, but there's a reason why someone will just flat out offer 20% over asking or letting these properties sit unrented. that's a terrible return on investment...

i duno, makes sense to me. when laundering the priority is always don't get caught > profits. housing seems to be at the moment the most unregulated and harder for authorities to pin and hold those accountable.

> i think nobody is arguing that you want the best bang for your buck

Bizarrely, the article and several commenters here are saying precisely that money launders don't want the best bang for their buck.

> but there's a reason why someone will just flat out offer 20% over asking

But nobody is doing that. The article seems to be assuming that, commenters are assuming that, but where's a single piece of evidence? If offering the asking price guarantees you the deal, offering 20% more is insanity. Nobody would do that.

You seem to be claiming that, somehow, overpaying for real estate... diminishes your chances of getting caught? (And several commenters here are assuming that too.) But it doesn't. Why would it? What would the mechanism even be?

I swear I don't understand where this idea is coming from, that overpaying for real estate does a better job at laundering money or something than simply paying market rate. It doesn't make any sense.

i mean i don't think they might be flat out offering 20% or over, but i have realtor friends that quite commonly do the whole "closed in X days, 15% over asking cash!". so obviously people are coming in with high bids intending to just push out other people quickly.

and i wasn't claiming that paying more prevented you from getting caught purely from a price perspective. i meant more that maybe there are mechanisms at play where this premium is somehow built in. like say you have a shady developer that caters exclusively to this type of clientele. why buy 10 units in a normal complex and invite scrutiny, when you buy this multimillion dollar unit in a boutique building and everything is setup to help you and all parties get the benefit.

manhattan real estate at the top end (i'm talking like 10M+ price units) are absolutely "tanking" during this pandemic. those prices are not subject to the typical market force. i'm just speculating of course, but i see it like how people speculate on art as laundering. the value is completely just whatever the heck these rich people say it is as it changes hands.

> The real situation is this: you have $200 of illegal money. Now you have the choice between using that $200 to buy a widget that's worth $100, or a widget that's worth $200.

> Obviously you'll buy the widget that's worth $200.

Sure, but what if we are talking about $200M instead? Now you want to go for the most expensive assets because you want to reduce the number of transactions (each transaction has a time overhead that is probably more significant than the dollar cost overhead). You know you aren't getting it done in one transaction because that $200M widget isn't out there.

Now assume you know that there are plenty of other money launderers operating in the same market. And you know logic behind the article. Now you aren't so worried about overvaluing an asset by 5 or 10%.

Just a thought experiment, I don't have any evidence or even anecdata to back it up.

> Now lets say I buy a widget that is worth 100 dollars for 200 dollars. Then I sell it for 100 dollars. I now have converted 200 dollars of worthless illegal money into 100 dollars of legal money.

You washed the dirty $200 for clean $100. However, the seller of that widget has made $100 additional profit; to the seller, $200 is clean.

Not sure I agree, launderers don't worry about price, they need to move funds and do so on a fairly reasonable timeline. Losing a bit of money is part of the cost of doing business, as long as it's lower then taxes, its still a good deal. Also hyping up a neighborhood you have flippable assets in, lends to wanting to overpay to drive pricing up. Your assumption that fraud follows normal logic is flawed. Read a few federal cases about laundering and you'll see, many of them ain't so bright. And sometimes money needs to be cleaned on a timeline, so overpaying is again, just another cost. Dangerous people like to be paid on time too, so you flip what you can in the time you have.

Source: I know someone who, along with their family, was prosecuted for it on a very large scale.

> launderers don't worry about price

Is the opposite of "launderers want to buy extremely overvalued things."

This is partly true, partly wrong. Each house bought for laundering money will be taken of the market for foreseeable future reducing supply. Also house prices are very sticky, those (non-laundering people) who bought at the inflated price will likely not want to sell for lower, creating a situation where they might be stuck with their house in case of a temporary market crash, leading to further supply constrained.

The low interest rate environment and the levarage works both ways :)

But what you're describing is normal supply and demand in any housing market, laundering or not. If a family moves in from out of town, they take the house off the market for the foreseeable future as well.

My point is that laundering demand is no different from regular demand, economically -- demand is demand, period. Laundering doesn't push prices up more than they'd get pushed up if it were actual families coming to down. It merely pushes them up the exact same amount.

yeah but laundering demand is less price sensitive.

If i am laundering money, i am OK paying some "tax". That's how laundering works in general. Even in case of car wash, they show it as a legitimate income, and they do pay tax on it - they just happen to make the money through illegitimate means.

2 properties at 1 million will probably require more time and effort though, right? Like they may be better off buying 10 200k houses, but the mob lawyer has more important things to do

Quite frankly, you've missed the mark on a number of points. First is that dirty money is effectively worthless until it's cleaned, and launderers recognize that it will take some percentage to clean the money. In other words, they're willing to take a loss on an asset, as that's their fee for getting clean cash.

> The only reason money launderers can have an outsized effect on the real estate market is because they generate more demand. Period. But that demand is no different from legitimate buyers. Demand is demand. That's the entire story.

You're not seeing the full story, and it's a point that's touched on in the article. These transactions don't happen in a vacuum, and the market doesn't know that the buyer was legit or a launderer. The transaction sets a comp, which then gets used by everyone to set their prices. Enough transactions from launderers, and you can effectively reset what the market value for a property is. There's also impact on supply as many who are deciding on when might be a good time to sell now see the market 10% higher than expected. Suddenly you can get an increase in supply, higher market values, and transactions that make it more favorable for launderers.

>A launderer will always prefer to buy 2 properties at a market value of $1 million each, over buying one of those at an inflated $2 million. Always. The laws of supply and demand don't disappear just because you're laundering money.

A launderer prefers transactions that are least likely to generate attention from the authorities. Depending on the legal legwork, the "suspiciousness" of a given transaction, and other factors it's tough to say what they'd prefer.

> In other words, they're willing to take a loss on an asset, as that's their fee for getting clean cash.

But like everyone else, even if there's a loss, they want to minimize it. They're not seeking a loss, so it doesn't matter. Nobody gives up money they don't have to -- that's the entire point I'm making. I'm not missing the mark, it's the article that's missing the mark.

> Suddenly you can get an increase in supply, higher market values...

That's the demand I referred to originally. Demand is demand. You're just describing demand. That's the full story.

> A launderer prefers transactions that are least likely to generate attention from the authorities.

Once the provenance has been hidden through layers of LLC's, they still have plenty of options. They don't need to give up half their money, which is my point, so they won't. So it's very easy to say what they'd prefer -- they prefer to keep as much of their money as possible.

The article, and you, seem to be arguing that money launderers have no problem throwing away money for no reason, as if money doesn't matter and prices can be driven up arbitrarily without limit. My point is that this is false: money launderers seek to keep as much of their money as they can while still laundering it effectively. By the time they've made it to the stage of negotiating over a price of purchase, they function economically as a buyer like any other.

> willing to take a loss on an asset

Is nothing like "desire to take the greatest loss on an asset."

> A launderer prefers transactions that are least likely to generate attention from the authorities.

Seems opposed to a desire to pay far too much for a thing.

The desire for people exfiltrating money from their home countries to buy real estate is because they are buying something that will never crash to nothing. Like you said, they don't really care too much if it's overvalued - the one thing that overvalued property always is, by definition, is widely available right now.

A nice side benefit is that you can park your kids in it, now, with the excuse of going to university, while you either continue to embezzle money and stay as quiet as possible to avoid discovery or arrest, or play revolution push-your-luck as a courtier to a dictator.

LOL "laws of economics"